Does this appointment raise questions of conflict of interest and should Ms Spencer resign from CPA Australia once she takes up her appointment of WA Auditor General and from her business?

With reference to WA Auditor General Act 2006 Schedule 1 - General provisions as to Auditor General on page 32 of the attached.

3. Other employment
The Auditor General must not, except so far as authorised so to do by another enactment or by resolutions of both Houses of Parliament —
(a) hold any office or place referred to in the Constitution Acts Amendment Act 1899 Schedule V Part 1 or 2 (other than the office of Auditor General) or be a member of, or of the governing body of, any commission, council, board, committee, authority, trust or other body referred to in Part 3 of that Schedule; or
(b) engage in any paid employment outside the duties of the office of Auditor General.

You would hope that CPA and the WA Govt had considered this and taken legal advice before CPA announced she would stay on with the board.

It does not appear that clause (a) would prohibit her from being a CPA director or member unless CPA was specifically listed in Schedule 4 of the Act. I haven't looked but presume it doesn't.

Clause (b) excludes her having paid employment apart from being auditor general, however, directors are not employees. Also with her own business depending on how it is structured she may not be an employee in respect of that either and could be director or sole proprietor.

I appreciate that just because the law doesn't prohibit something doesn't mean there is not an issue, for example does she have enough time to perform the roles auditor or CPA director. Clearly from a WA Govt point of view she should not have involvement with any organisations she audits.

Respectively disagree with your point about directors. She is a director of CPA Australia and is being remunerated. Her own business, one would assume, that she would stop receiving remuneration, and receive her benefits, in the form of profits. There may be a need for a business restructure.

Lets us consider the taxation laws, which basically determine that directors are employees as they are remunerated, and therefore subject to super guarantee laws, and issues with regards to fringe benefits tax laws.

Recently I have been surprised at the number of occasions when I have been required to sort out whether company directors are employees of the company for the purposes of fair work law. The answer of course is that it all depends upon the acts. There is no inherent reason why a company director cannot be an employee at the same time, in fact I suspect that is normally the case from a legal perspective.

To determine the position in any particular case, it is necessary to go back to basic principles. See for example Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 per Katzman J. And here is a practical example of this process at work.

“To be able to pursue an application for unfair dismissal, Mr and Ms Middleton had to be employees at the time they assert they were dismissed. As at 19 October 2016, they had not been paid for some five months. The evidence of Mr Gray indicates that they both held directorships of the business over that time. However, that evidence also indicates that, whilst Mr and Ms Middleton had controlled the business and had elected not to claim payments over that period of time, they had continued to have access to business property in the form of vehicles and tools.

On the evidence before me, I am unable to characterise the arrangement that Mr and Ms Middleton had with Build West as a form of voluntary arrangement and it seems to me that they must be regarded as employees. This does not imply that they have any legitimate claim to particular additional payments over that time as that issue is not a matter which I need to determine. Had it been the case that the evidence demonstrated that Mr and/or Ms Middleton had ceased working for Build West in May or June 2016, the unfair dismissal claims would have been made substantially outside of the 21 day legislative time limit. However, the correspondence to both Mr and Ms Middleton of 19 October 2016 clearly suggests that they were regarded by Build West, until that date to be employees. Those letters commence with the following statement:

“I write to advise you that you have been made redundant from Build West Pty Ltd, effective immediately, and as such, your employment has terminated. I have exercised my rights in accordance with the Memorandum and Articles of Association of Build West Pty Ltd as sole member (shareholder and owner) of Build West, and by ordinary resolution you are no longer a director, effective 17th October 2016.

A managing director is an employee as well as a director
Anderson v James Sutherland (Peterhead) Ltd. [1941] SC 203

The facts:

Mr. Anderson was appointed joint managing director of a private company, James Sutherland Ltd., in 1932. He was convicted of assault in 1940, following which the other directors resolved that as a result of his misconduct, they would dismiss him from his post as managing director and, in accordance with the company’s articles of association, redistribute his shares amongst the remaining directors.

The assault in question had occurred during a directors’ meeting the year previous, wherein Mr. Anderson produced a revolver and proceeded to shoot his co-directors, seriously injuring two of them.

Mr. Anderson sought a declaration from the Scottish Court of Session that the resolution of the directors to remove him from his membership of the company and to offer his shares to the remaining directors was void.

What the court decided:

A central question that the court had to determine was whether Mr. Anderson was employed in his capacity as managing director. In the event that he was in the employ of the company, the directors would be able to dismiss him for misconduct and therefore gain access to his shares under the company’s articles of association. Mr. Anderson contended that a managing director was simply an ordinary director entrusted with some special powers, and that his position as ‘permanent’ director could therefore not be usurped.

The court held that while a director is ordinarily not an employee of the company, a managing director holds two separate and distinct offices – manager and director – and that the managerial role is one of servitude.

Notable quotes from the judgement:

Per Lord Normand:

“I find nothing in the speeches of the majority which implies that the functions of a director and of a managing director are the same. In my opinion therefore the managing director has two functions and two capacities.”

“… As managing director he is a party to a contract with the company and this contract is a contract of employment; more specifically I am of the opinion that it is a contract of service and not a contract for services. There is nothing anomalous in this; indeed it is a commonplace of law that the same individual may have two or more capacities, each including special rights and duties in relation to the same thing or matter or in relation to the same persons.”

Take-away message:

A managing director is simultaneously a director of the company and an employee of it.

While in Mr. Anderson’s case this allowed the company to remove him from office and redistribute his shares, generally managing directors will benefit from their status as employees.

What follows is that a managing director who is removed from office as director – and as a result loses his or her position as managing director – maintains a right to sue for breach of contract. This principle has been affirmed by the Supreme Court of Victoria in Lincoln Mills v Gough [1964] VR 193.

As a result, I have concluded that, until 19 October 2016, Mr and Ms Middleton were regarded as employees and that the letter of that date purported to dismiss them. Accordingly, I am not prepared to accept the Build West contention that Mr and Ms Middleton could not be regarded as employees”.

Agreed how she finds the time to do both roles would an issue though she is not president like Tyrone Carlin Auditor General of a State is not a trivial role.

It would also be an issue if the definition of employment in the WA Act is broad enough to cover contractor or a person running their own business.

The case above from Fair Work appears to be only concerned with managing directors. Caroline Spencer would be a non-executive or independent director of CPAA who does not also work as an employee. Alan Joyce is CEO and Managing Director of Qantas so he is an employee and a director. Directors fees can be caught for super purposes even if they are not employees.

"The issue of Director’s fees often comes up – should we pay directors? If we do pay fees how and what should they be paid? We answer the common questions for private companies.

Can you pay a Director?

Directors who work in the company, executive directors, would generally have an agreed executive remuneration structure that takes into account their service including attending Board meetings (so, generally no extra fees for service outside of the agreed remuneration structure).

For non-executive directors, companies can only pay Director’s fees if:

In the case of for-profit companies, payments are allowed if the company constitution allows for it or a resolution is passed to make the payments. The resolution to pay directors fees must be made and documented prior to the fees being paid.

In the case of not-for-profit charities registered with the ACNC, as long as payments to board members are in furtherance of the charity’s charitable purpose, permissible under the charity’s rules, and properly authorised within the entity, the ACNC does not prohibit them. However, any payments to board members that are unreasonable, unauthorised or unjustifiable may mean that the charity is not complying with the ACNC’s Governance Standards. Furthermore, if a charity that is a Company Limited by Guarantee wanted to apply to be allowed to omit the word ‘Limited’ from its name, the Corporations Act 2001 (Cth) requires that the charity prohibits payment to its directors. Similarly, a charity that is a trust, cannot pay its trustees unless its trust deed specifically sets out that they are to be paid. Fundraising laws in some states may also regulate payments to board members.

These fees are in addition to any agreed expenses such as travel expenses to attend board meetings or in connection with the company’s business.

Fees paid to directors are subject to disclosure requirements. Special rules exist for listed entities, APRA-regulated financial institutions and specific advice should be sought for the management of director fees by these entities.
Tax deductibility of director’s fees

Fees paid to Board members are tax deductible to the company in the year they are paid or intended to be paid. Many Boards pass a resolution to pay Director’s fees just prior to the end of the financial year to claim the tax deduction in that same year. The fees do not necessarily have to be paid prior to the end of the financial year but the Board must have definitely committed to paying them and then the fees paid as soon as practicable.
Tax on director’s fees

Assuming the directors fees are being paid through an individual contractual arrangement (i.e. the contract is with Mr Smith to act as a director, not with Smith Pty Ltd to provide ‘someone’ as a director, and that happens to be Mr Smith), then the directors fees are treated like salary and wages for the purposes of PAYG withholding. PAYG is required to be withheld from the gross directors fees, reported on the IAS or BAS that is used to report the salary and wages and related PAYG W for that period, and should be remitted to the ATO.

Director’s fees fall within the definition of Ordinary Times Earnings, and superannuation guarantee applies.

Director fees are required to be reported on a payment summary, and are generally reported at item 2 of an individual’s tax return. If they are not reported on payment summaries, it could result in errors in the PAYG withholding annual report, and queries from the ATO regarding the payments.

While the ATO may recognise that there can be a difference in the provision of services by and payments to directors (e.g. the contract may be for ongoing director services and attendance at quarterly board meetings, with payments of director fees to be made once a quarter, not monthly), the PAYG W and superannuation contributions are still subject to reporting and payment by the standard deadlines that apply for all other employees.

The directors fee should also be included in any workers compensation calculation and would generally be captured for payroll tax purposes as well.
Can Director’s fees be paid as super contributions?

Yes, assuming the proper process has been followed (e.g., effective salary sacrifice arrangement has been entered into before the fees have been earned), fees can be paid to the Director’s superannuation fund as a reportable employer contribution to utilise preferential tax rates. This assumes the director is within their contribution limits.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained."

You nailed this JWheldon. It's in the AFR and CPA Australia has just today come out and said that she is going voluntary. I.e. not paid employment. Actually the payment is going to go to the WA government.

I think it's still another case of 8 days a week. I am expecting Directors to perform, not to have better things to do. If she is too important for CPA Australia then she should bugger off and let someone else do the job.

I think it's great that someone that has had the qualifications and experience to be appointed WA Auditor General is on the board of CPA Australia.

If, when I was still a member, I was given the opportunity to vote for the board she would have got my vote.

Obviously she has dealt with the relevant issues to comply with her new job.

This actually reminds me of what it used to be like. I can remember past presidents remuneration being paid to the employer who allowed them to undertake the presidents job. In the days before the full professionalization of the board.

I don't think the former geriatric and academic buddies of Mr Malley, that were on the board previously, would have even thought about the concept of complying with the law, unless they were dragged kicking and screaming too it by media scrutiny.

Still think the new president is a clone of the old one, or separated at birth and should be removed. At the end of the day his decision not to chase the old board for breach of directors duties was why I resigned in disgust.

This was copied from my email from CPA board in relation to Caroline Spencer

Dear member,

Today an article was published in the Australian Financial Review that contains inaccuracies and we wish to provide you with more detail.

Appointment of Caroline Spencer to WA Auditor General position

Caroline Spencer was appointed to CPA Australia’s Board on 1 October 2017 for a two-year term.

On 14 March 2018, it was announced that Ms Spencer had been appointed as Auditor General for Western Australia.

As part of the appointment process, Ms Spencer wrote to the WA Treasurer on 7 March 2018.

Ms Spencer’s letter to the WA Treasurer can be viewed here.

Ms Spencer sets out the steps she would take if appointed to ensure no conflicts of interest during her term serving in the role, and to ensure she would not be in paid employment from any other source, as required by Schedule 1 clause 3 of the Auditor General Act 2006.

Ms Spencer advises she would not receive Director fees from CPA Australia if appointed but rather Director fees would be paid to the Western Australian Office of the Auditor General.

She takes up the role on 28 May 2018.

Appointment of Directors to CPA Australia’s Board

CPA Australia’s new Board was appointed solely by Divisional Councillors directly elected by members.

This followed an open Expression of Interest process advertised to all CPA Australia members and more broadly last year.

Since our appointment your new Board has engaged with thousands of members in hundreds of formal and informal meetings and at CPA Australia events.

We are listening to members and we are delivering positive change in the interests of all members.

Being open and transparent with members remains a core commitment for your new Board. We are working closely with Divisional and Branch Councils and members more broadly to restore the reputation of CPA Australia.

My question is is she still in conflict of interest? I read that "Ms Spencer sets out the steps she would take if appointed to ensure no conflicts of interest during her term serving in the role, and to ensure she would not be in paid employment from any other source, as required by Schedule 1 clause 3 of the Auditor General Act 2006.

Ms Spencer advises she would not receive Director fees from CPA Australia if appointed but rather Director fees would be paid to the Western Australian Office of the Auditor General.:" She may get director fees indirectly by virtue of "bonus" as provided by WA Auditor office!!

It would seem like forgoing the fees makes it legal from the point of view of the act. However, I think the question remains about the time commitment BOTH ways. As far as members are concerned we should be wondering if we are getting a committed Director or someone with a great resume that simply does not turn up. Strangely this was not addressed in the email.

It is interesting in the bio about Caroline Spencer that "She has a passion for promoting accountability and continuous improvement in public institutions as a mean of enhancing trust and performance for the communities they serve." Are these just words, to enhance the bio, or does Caroline actually believe in promoting accountability and enhancing trust and performance?

Does the board of CPA Australia, in this situation, add to a high ethical standard or enhancing trust?

Is the CPA Australia's own high ethical standards expected of all CPA Australia board directors non-existent?

Have the board of CPA Australia, just breached their own high expected standards in this particular matter?

Does this situation, just diminish the confidence, that individuals may have of an auditor general, who are supposed to have very high ethical standards?

Is this a situation of CPA Australia and Caroline Spencer reflect very poor corporate governance?

Caroline is a public practitioner based in Canberra specialising in governance and assurance. Having commenced practice in business services and Big 4 firms in Sydney, she has worked with organisations in various sectors and undertaken engagements across Australia and in Singapore and the Pacific. She has a passion for promoting accountability and continuous improvement in public institutions as a means of enhancing trust and performance for the communities they serve.

Caroline has a strong interest in non-financial assurance and over-the-horizon issues affecting our profession and has advocated for members and contributed her skills to CPA Australia through divisional council, the Centre of Excellence in Reporting and Assurance and other forums.

She is currently appointed as an independent member to a number of public sector audit committee and board roles.

Directors, members and employees of CPA Australia are required to act in accordance with the highest standards of honesty and integrity.

The respective codes of conduct which among other things set out expected standards of behaviour, are approved by the Board, and are given to all new directors, volunteer members and employees.

CPA Australia promotes diversity across the organisation with regards to age, gender, ethnicity and the cultural background of its directors, committee members and employees. For further information relating to diversity, refer to the Organisational Diversity and Inclusion Policy, and pages 43 to 45 of the 2017 Integrated Report.

CPA Australia is a member based public company limited by guarantee and does not have securities and accordingly does not report on share trading policies."

They did answer the question at the AGM. Her CPA directors fees will be paid to the WA gov't.
This is the way all directors fees were to have been paid after the initial consultation in 2006i.e the directors fees were to be paid to the directors employers as reimbursement for time away from their full time job.
But, in true 'lets reap as much as we can for ourselves personally' fashion the board in 2009 amended the constitution to enable directors fees to be paid directly to members and not to their employers. The only board member who insisted on his fees being paid to his employer was the one who was from the NSW Auditor Generals department (Paul Cooper) from 2006-09. Good on him though I daresay that is a requirement of the Auditor Generals department to ensure no conflict of interest concerns. Clearly that was no a concern with any of the other board members.
My gut feel is that Caroline Spencer will be a fine director and we need more of her ilk.
In all of this the whole notion of serving on professional membership organisations for the good of the profession has been thrown out the door. It is seemingly more a question of how much money will I be paid as a director, and what other little perks and benefits will accrue to me. And this was the whole emphasis of the change way back in 2007 when the governance review was done.
To me someone like Ian McPhee typifies this whole new mentality. Someone who rose to be the Auditor -General of Australia and no doubt on a handsome retirement package was not able to say I will do an independent review voluntarily for the good of the profession, to give back something that it has given me for many years (which I should add is what the vast majority of CPA members have done over the years to establish CPA). No, rather he refused to disclose what he received but it was some paypacket for a brief four months if $1 million was the shared cost between the four panel members and the nous secretarial group.
It's a whole new paradigm in thinking and its not very pretty.
So, lets at least give Caroline Spencer credit for the fact that she really is not doing this for the money. Good on her I say.

I think l heard the chairman Mr Peter Wilson, say that Caroline Spencer would no be paid any director fees and the fees would not be paid to the WA Auditor general office, and they were seeking legal advise with regards to the payments. Did any one else hear the same thing?

Maybe others heard something different. It does seem to be management on the run. Lets get legal advise, one week before Caroline Spencer is to take up her appointment, and especially when Caroline knew of the appointment back in March 2018. Have the board acted in the highest standard with regards to this matter? Who is going to hold the board of CPA Australia to the highest standard, that they have set? It certainly can not be the general members.

Unfortunately the auditor Mark Stretton will not be looking at this matter, as it is not with his term of engagement. He is looking for material errors in the accounting system.

Maybe the AFR will be able to get a response from CPA Australia, or even the WA journalists from the WA Treasurer.